The rumor mill of Philippine social media has been churning this week with the possibility of San Miguel Corporation (SMC), the ubiquitous conglomerate behind everything from beer to infrastructure, taking flight with its own airline. Speculation has been rife with armchair analysts and aviation enthusiasts weighing in on the potential impact and likelihood of this major move for the diversified giant.
SMC, a Philippine conglomerate with a diverse portfolio spanning food and beverage production, infrastructure projects, and even telecommunications (previously), has established itself as a dominant player in numerous industries. However, venturing into the airline industry, a sector known for its intense competition and high operational complexity, might not be the most strategic move for the company at this point in time. While the potential for synergy with SMC’s existing logistics network and the allure of a captive market for its products could be tempting, several factors suggest that SMC is likely to stick to its core business for now.
Firstly, the airline industry is a notoriously difficult market to crack. New entrants face a multitude of challenges, including entrenched competition from established players who benefit from economies of scale and strong brand recognition. Philippine Airlines and Cebu Pacific, for example, have decades of experience navigating the Philippine aviation landscape, allowing them to optimize routes, secure favorable landing rights, and build brand loyalty with frequent flyers. SMC, on the other hand, would have to start from scratch, investing heavily in marketing and route development to carve out a niche in a crowded market. In addition, the airline industry is susceptible to external factors beyond an individual company’s control. Fluctuations in fuel prices can drastically impact profitability, and unforeseen events like global pandemics can ground entire fleets for extended periods. Even a well-established airline can struggle to weather such storms; for a newcomer like SMC, the risks would be even greater.
Secondly, SMC lacks recent expertise in airline operations. While the company did hold a majority stake in Philippine Airlines for a period, the venture proved lackluster. Running a successful airline requires specialized skillset — managing fleets, scheduling, pilot training, and navigating complex regulations. SMC’s core competencies lie in manufacturing, construction, and related fields. While transferable skills in logistics and project management exist, the intricacies of airline operations are a different beast altogether. Building a new department from scratch to handle ticketing, flight operations, safety protocols, and maintenance would be a monumental undertaking. Furthermore, attracting and retaining qualified personnel — pilots, air traffic controllers, cabin crew, and maintenance technicians — would be a significant challenge. These specialized roles require extensive training and experience, and established airlines would likely be fierce competitors in the talent pool.
Thirdly, SMC already has a strong logistics network. The company owns several shipping and cargo businesses. Partnering with existing airlines for passenger transport could be a more cost-effective way to leverage their existing network for travel needs. The conglomerate could negotiate bulk discounts for transporting employees or customers on established routes. This would allow SMC to tap into the expertise of experienced airlines while still offering travel options aligned with its brand. In addition, SMC’s cargo businesses could benefit from strategic partnerships with airlines. Streamlining cargo loading and unloading processes at airports co-located with SMC’s terminals could improve efficiency and potentially reduce costs. Collaboration on international shipping routes could also be explored, allowing SMC to expand its reach and leverage the airline’s established infrastructure for global cargo movement.
Finally, diversification can be a double-edged sword. Spreading itself too thin could distract SMC from its core competencies. Focusing on established businesses with high brand loyalty and market share might be a more prudent strategy. Diversification is often lauded as a way to mitigate risk and capitalize on new opportunities. However, for a company as large and complex as SMC, managing a diverse portfolio can be a challenge. Resources that could be dedicated to improving existing operations or developing new products within its core competencies might be stretched thin by the demands of a new venture in a completely different industry. The airline industry is particularly capital-intensive, requiring significant investments in fleets, infrastructure, and personnel. Diverting these resources away from SMC’s core businesses could hinder its ability to maintain its competitive edge in its established markets.
However, there are some scenarios where SMC might consider an airline. If the opportunity arose to acquire a struggling airline with a good route network and experienced staff, SMC could potentially leverage its resources to enact a turnaround. The company’s experience in business process optimization and brand management could be instrumental in reviving the airline’s fortunes. This approach would mitigate the challenges of building an airline from scratch and allow SMC to benefit from the acquired airline’s existing expertise and infrastructure.
Another possibility is the creation of a niche airline catering to specific routes or cargo needs. SMC could leverage its existing logistics network and understanding of the Philippine market to identify underserved routes or gaps in cargo services. For instance, the airline could focus on providing direct flights between regional hubs that are currently not well-connected, or specialize in transporting agricultural products or perishable goods that require specific handling procedures. By targeting a niche market, SMC could avoid direct competition with established airlines and carve out a profitable position for itself.
Ultimately, while the allure of an SMC airline exists, the challenges outweigh the potential benefits. For now, at least, San Miguel Corporation seems likely to keep its feet firmly on the ground, leaving the Philippine skies to established players.